A new report today from cybersecurity recruit firm Pinpoint Search Group finds that venture capital funding of cybersecurity startups plummeted 55% in the second quarter of this year from a year ago.

Pinpoint tracked 115 funding and merger and acquisition transactions in the cybersecurity sector in the second quarter, with the total coming in at $1.9 billion, down from $4.3 billion in the second quarter of 2022.

Despite a big decrease in financial terms, the total number of venture capital rounds into cybersecurity companies surpassed last year’s second quarter, coming in at 97 versus 92 a year ago. The second quarter also saw 18 mergers and acquisitions, which Pinpoint claims reflect the cybersecurity sector’s sustained vitality.

Seed funding led with the cybersecurity pack in the second quarter, accounting for 45% of all funding, with an average seed investment of about $5 million. The ongoing interest in seed funding reflects investors adopting a more diversified approach — investing across multiple vendors instead of pouring substantial funds into a single or a handful of companies, to manage risk more effectively.

Although the headline figure in terms of funding may be down, Pinpoint’s report notes that the cybersecurity market grew 12.5% in the first quarter, outpacing growth in the general tech market.

“The trends we’ve observed suggest a strategic recalibration within the cybersecurity industry,” Mark Sasson, founder and managing partner of Pinpoint Search Group, said ahead of the report’s release. “According to Gartner, 75% of security buyers are pursuing vendor consolidation, up from 29% in 2020. This has led to a windfall for established vendors who are capitalizing on this drive towards integrated platform solutions.”

Sasson explained that though there is an ongoing need for robust cybersecurity measures, the rising trend of established vendors expanding through acquisitions implies that investors are distancing themselves from startups that aren’t performing well. “The industry seems to be shifting its attention to cutting-edge cybersecurity technologies that are poised to fuel both innovation and mergers and acquisitions,” Sasson added.

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